Video Game Consoles for Next-Gen TV? Don’t Believe the Hype

Video game consoles such as Microsoft’s Xbox 360 and Sony’s PlayStation 3 (PS3) are going to evolve into "multimedia gateways" and will soon be receiving a lot of video, according to Dallas-based research firm The Diffusion Group (TDG). They argue that when it comes to on-demand video content, the consoles can go toe-to-toe with local cable or satellite TV operators. They are very bullish on the consoles, but not so much on standalone set-top boxes (and there are many) — precisely because such a stance doesn’t involve buying yet another set-top box.

According to TDG, by 2012, roughly 190 million households will use a next-generation game console — of them, some 80 percent will be connected to the Internet, and 75 percent of console-connected households will use video-based services at least a couple of times each week. Another report estimated that Microsoft will make $726 million from its Xbox Live Video Marketplace.

Having covered the technology industry for as long as I have, I take such bold predictions with a Mount Rushmore-sized pinch of salt. But I do agree with the overall thesis that consoles will serve as the center of your living room. We have numerous clues pointing to this.

Despite all these positive signs for the consoles, in my opinion the big push for Internet video in the living room is going to come from embedded systems in the next generation of connected televisions andnew Blu-ray DVD players. Where does that leave many of those standalone set-top boxes? Their investors aren’t going to be thrilled by my answer. Or TDG’s bold predictions.